Pandora Forced To Pay Artists Millions More – But Fares Well In Crucial Rates Decision

The fate of record labels and artists everywhere has been resting in the hands of three US judges for the past year.

This trio of lawmakers comprise the country’s Copyright Royalty Board, which has just delivered a crucial decision on the statutory per-stream rate paid out to recorded music rightsholders by non-interactive digital ‘radio’ platforms such as Pandora and iHeartRadio.

And for labels and artists everywhere, after months of heavy lobbying on both sides, it’s reasonably good news: the non-subscription per-stream rate set by the CRB will be $0.0017.

That’s $0.0003 more per stream than recorded music rightsholders currently receive from Pandora.

According to MBW calculations, that will mean Pandora paying out $94.1m more to recorded music rightholders next year compared to 2015 for the same amount of consumption.

However, it’s not all positive for the record business.

This rate will only apply for definite in 2016 – the following four years (2017-2020) will be determined by fluctuations in the US Consumer Price Index, which could bring the rate back down.

More importantly, it’s also lower than many on the industry side were hoping to achieve.

Pandora’s investors are certainly happy: the service’s share price has rocketed 13.2%on the NYSE after hours as a result of the decision.

THE BACKGROUND

As we stand in 2015, the webcasting rate paid by Pandora to labels and artists in the US is $0.0014 per ad-funded (free) stream – up from $0.0013 in 2014.

That money is paid out to SoundExchange, which then passes it on to recorded music rightsholders.

Pandora told the CRB last year that it wanted to bring down this rate to $0.0011 per stream.

However, SoundExchange has been arguing wants to almost double it to $0.0025.

So with today’s CRB-approved $0.0017 per-stream rate now set in stone, Pandora will be forced to pay out approximately $0.0003 more per stream to labels and artists in 2016 than it is currently.

HOW DID YOU GET THAT $94.1M FIGURE?

Well, it’s approximate.

Pandora has never confirmed the total number of streams taking place on its service each year, but we can have a decent guess.

In FY 2014, Pandora paid out $446.4m to all music business rightsholders, according to its SEC filings. (From a total cost of sales of $508m.)

Pandora gave 4% of these total revenues to ASCAP and BMI in 2014. Subtract this publishing payout, and we’re roughly left with what Pandora paid to labels and artists in 2014: $407.8m.

Divide that by Pandora’s 2014 per-stream label royalty rate of $0.0013, and you get 313.7 billion annual streams.

(This doesn’t take into account Pandora’s premium tier, Pandora One, which pays out a slightly higher per-stream rate yet is only engaged by a small number of its 78m users*.)

So now it’s a simple case of multiplying one by the other: Pandora’s annual streams (313.7bn) by the difference in the new CRB-approved per-stream rate it will have to pay rightsholders ($0.0003).

The answer: at current consumption levels – and, remember, many expect Pandora’s user figures to grow – Pandora would pay labels and artists roughly $94.1m more next year than it will in 2015 at current rates.

An interesting sub-story: Pandora was previously paying $0.0025 per stream for those on its subscription tier. As the result of a separate CRB ruling, this falls to $0.0022 per stream.